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Monday, March 7, 2016

When Money Speaks Louder than Words

Happy March, fellow retailers! Worst frame of the year for sales, amirite? But wait, from many corners of the continent I am hearing entirely the opposite. Boom times are here. January was strong for diversified retailers, and was our best month in the store's history. February kept the fire hot and was our best February ever, and ended up around our sixth or seventh best month overall, depending how you count in-store versus online versus off-site (convention) revenue. Magic is still climbing out of a slump, thanks to Oath of the Gatewatch showing some rather coarse levels of strength in competitive play, but other lines have been flexing triceps all year long.

It's easy for a retailer to soul-search when things are bad, especially because that usually means the store isn't busy and sales aren't happening. It's just as important for a retailer to make the time to scrutinize processes and operations when things are good. Not only does it help solidify what's working, but it also serves as a good opportunity to avoid the kind of process breakdowns at scale that eventually bring every winning streak to an end.

In DSG's case, the X-factor juicing our sales was pretty clear: Miniatures, in particular Games Workshop.

Warhammer 40K is not a new brand to the ears of hobby game retailers. The line has existed since the 1990s and has been a consistent seller ever since. This is in spite of publisher Games Workshop's often baffling trade communications framework.

Retailers learn about hot new Warhammer releases literally a couple of weeks before they are on the shelves. I received my March 19th release information today. Contrast this with Wizards of the Coast, WizKids, Fantasy Flight Games, or the comics publishers, who have everything ready for us complete with street dates and barcodes many months in advance.

Games Workshop's retailer interfaces, such as the North American Retail Support Facebook group, aren't really for feedback or business development so much as to serve as an official channel of information. This is fine, really, as the social media outreach to retailers varies among publishers; probably the most lenient is Wizards of the Coast in their WPN Retailer group, where moderation is still significant. Ultimately to learn about the dirty nuts and bolts of the trade, retailers utilize their own private groups.

The situation is improving -- Games Workshop recently reformatted their retailer product announcements to ensure that we had all the data we needed to pre-load our point-of-sale systems -- but the Nottingham-Memphis Purveyor of Space Marines is still known for Apple-esque secrecy overall. Retailers find out about new product from leaks published on Bell of Lost Souls, an online community, well before official word arrives.

Games Workshop's practice of keeping business moves tightly held frustrates small specialty retailers, and no few of them give up on the line and either run it in maintenance mode or drop it entirely. I can certainly sympathize with that sentiment. But recall the immortal words of Sean "Puffy" Combs: It's all about the Benjamins, baby. And if you can cope with the sometimes stilted business interface that Games Workshop presents, you will find a company that has engaged policies designed to protect the value of its product, ease the difficulty with which retailers stock and replenish it, and promote merchandising best practices to boot.

Let's go down the list.

Channel restriction. Games Workshop direct accounts are not permitted to sell product online, and this policy is actively policed. Games Workshop's own website sells product at MSRP, ensuring that there is not a direct channel of devaluation. E-commerce retailers can still procure Warhammer et al from distribution, but at a capped discount around ten percent worse than Games Workshop offers on direct. The net result of this policy is that online dumping essentially does not occur and online discounting is not deep, averaging in the teens of percents. Brick-and-mortar retailers may confidently sell at MSRP or an amount close to it. Even with our Amazon price-matching the discount isn't too painful.

Consistent merchandising. The company provides ample rack and fixture at little or no cost to direct accounts, each component designed to fit precisely the product mix the company produces. When I needed more, my account rep made it happen.

Financial assistance. Approved direct accounts are offered generous payment terms. Typically Net 45 day, tapping to a credit card after that with no surcharge, allowing stores like mine to get an effective Net 75 depending when in the month the charge is taken, and earning AMEX reward points to boot.

Facilitation. Any size of order will ship immediately with no freight charge. I have had as much support from my account rep as I could ask for in terms of ordering logistics.

Oversight. Direct accounts are expected to maintain minimum stock levels that sometimes are not consistent with actual turn rates or sales volume (but usually are). For reasons I cannot fathom, I am required to carry two SKUs from the defunct Hobbit miniatures game even now. However, the flip side of this policy is that your account rep will manage your inventory and restocks for you, if you don't want to do it yourself or aren't sure what to order in the line. This keeps stores from running dry on key sellers, gives greenhorn retailers a safety net of sorts, and helps promote best practices with inventory management in general.

Constant content. The combination of inventory management and terms allows Games Workshop to maintain a release tempo of two to ten new SKUs every single week and know that stores will actually stock them. A given army faction will only get new releases every couple of months on average, but every week has something to keep players coming in.

Perquisites. Based on a mixture of volume and special promotions, direct accounts receive a free product credit stipend annually that ranges from "a lot" to "an embarrassingly large amount that's actually so much I have struggled to spend it all." The caveats are that it cannot be used to replenish normal inventory, and it cannot be used for tournament prizing. We have used it thus far for store armies, terrain, tables, library, and materials, as well as an employee performance perk for those who play.

Reliable fulfillment. Stock outages are rare and brief; virtually every in-print product in the Games Workshop catalog is always available.

Focus. There is basically no organized play. While this leaves stores largely to their own devices to promote gameplay, it also allows for third-party organization at whatever level the player public will sustain, without creating a promotional expense for the mothership. Games Workshop states that the majority of their buyers are purely modelers and not tabletop wargamers, but also states that they collect no information on this. I'm just going to hedge my bets and operate on the assumption that most buyers want to play the game.

Finally, one to be keenly aware of:

Direct-to-consumer competition. Games Workshop operates company stores, and they tend to capture a significant amount of a new adopter's early (higher-margin) spending. Many independent retailers resent this. My vantage point sees somewhat farther. Even if only a small percentage of players who enter the hobby at a Games Workshop company store were completely new to tabletop games, that still represents tremendous aggregate conversion into our hobby from the mainstream. It's easier for a comic and hobby game store to please a customer who is already on familiar ground than it is to win over a new initiate. And the company store does not discount.

As you can see, that's a policy mixture that can cause a non-trivial amount of headache for retailers not prepared to accept the implications of it. We added Games Workshop to the DSG product lineup in April 2015, buying the GAMA Trade Show start-up package. Early in the game, our ownership found the company's policy mix constricting and saw moribund sales. We contemplated cutting our losses later that summer and moving on without miniatures.

But then something happened. Slowly, organically, the audience grew. We were eventually able to afford to hire an employee specializing in miniatures, and that fed the audience further in a virtuous cycle. And an amazing thing happened next. By January 2016, Games Workshop surpassed Marvel Comics and Fantasy Flight Games to become our second-biggest selling publisher after Wizards of the Coast.

The halo effect has been real as well. Demand fed our expansion into other miniatures, such as Privateer Press's Warmachine and Hordes, two play-a-likes of Warhammer 40K with their own lore and extensive model catalog. In the early going, more of our Citadel paint was sold to players finishing their Star Wars Imperial Assault figures than Warhammer itself. Demand continues to incubate for other miniatures lines, such as Infinity and the forthcoming Guild Ball. WizKids prepainted miniatures are on a huge upswing as well, but we attribute that to the publisher's own policy changes in recent months and the positive effects deriving from that. Our engagement has been rewarded for sure.

So, now that I know what is causing this recent surge of success, what am I going to do about it? I am doubling down my big bet on Warhammer.

Over the course of the next month or two, I am going to extend to carrying essentially every SKU that Games Workshop produces, and carrying the more popular sellers in depth. I have already purchased four new eight-foot-tall gondolas for merchandising. This week I am requisitioning another set of racks and shelves from Games Workshop to add to my existing fixtures. Concurrent with the already-underway ComicSuite RMS point-of-sale transition, I will keep my own inventory metrics and reloads like I do for other product lines rather than depending on my Games Workshop account rep to do it. (Sending my system's inventory report to him once a month meets my MSL requirement, though with the way Warhammer sales have been lately, I am hardly worried about meeting minimum stock levels anymore.)

I've got a hot horse and I'm going to ride this pony until it gives out. My first super-restock came in last week, quadruple the amount of my typical weekly orders lately. It was glorious.

Does the short-notice release cadence bother me? You bet. Would I prefer a bigger wholesale margin? That's true of any product. Do I wish the Games Workshop social media offering were more bidirectional? Yeah, I guess. Are any of these issues dealbreakers? Not for as long as Games Workshop produces excellent miniatures that sell. As usual, money prevails. Now what'chall wanna do? Wanna be ballers? Shot-callers, brawlers? Who be dippin' in the Benz with the spoilers? On the low from the Jake in the Taurus. It's all about the Benjamins, what? What?